Tim Draper, in a partnership with Vaurum, will use bitcoins to launch trading platforms in emerging markets

Venture capitalist and entrepreneur Tim Draper is rolling in bitcoins after winning a U.S. government auction Monday.

He bought 29,656 bitcoins — a new form of digital currency — from a trove that the government seized in a raid of the illegal online drug market Silk Road last year.

Draper, co-founder of Silicon Valley investment firm Draper Fisher Jurvetson, beat out 44 other participants during the 12-hour auction Monday and identified himself as the winner Wednesday. Though the price he paid wasn't released, the stash is worth about $19 million at current market prices.

Draper says he'll use the digital currency in a new business to bring bitcoins to the developing world.

Bitcoins are among the oddest but potentially most profound phenomena to hit world currency markets in modern times. They're not physical coins but pieces of software code traded over the Internet. Their origins are mysterious: Legend has it they were created in 2009 by a man with the alias Satotoshi Nakamoto.

It's very hard to pin down what the exact value of bitcoins is. But the more liquid the markets are, the less volatility there will be on a day-to-day basis.— Wedbush Securities analyst Gil Luria

Since then, bitcoin markets have developed and some online retailers — including Tiger Direct, New Egg and Overstock — are accepting bitcoins for payment. Bitcoin ATMs are popping up. California recently changed state law to allow use of bitcoins and similar alternative currencies.

Federal regulators are studying the currency closely. The IRS recently ruled bitcoin is a property, legitimizing its use. Bitcoin holders lost millions in the collapse of Tokyo bitcoin exchange Mt. Gox this year.

Still, demand for bitcoins continues to grow. Bitcoin prices dived during the Mt. Gox contretemps, but have headed upward since.

The price of bitcoins has grown nearly $100 since last week to about $650 as of Wednesday as established investors like Draper entered the auction, Wedbush Securities analyst Gil Luria said. The value of bitcoins will continue to fluctuate, but as liquidity grows the price swings will lessen, he predicted.

"It's very hard to pin down what the exact value of bitcoins is," Luria said. "But the more liquid the markets are, the less volatility there will be on a day-to-day basis."

The Draper venture capital firm is among the best known and respected in Silicon Valley, having invested in companies such as Skype, Hotmail and Overture.com. Draper's million-dollar endorsement of bitcoins may lend the bitcoin market more credence.

Draper, in a partnership with bitcoin exchange Vaurum, will use the bitcoins to launch trading platforms in emerging markets. Draper and his son, Adam, were early investors in Vaurum, which aims to serve financial institutions looking to exchange and store bitcoins. The bitcoin stash will be used for market liquidity, Draper said.

Emerging markets may be ripe for bitcoin. Currencies in developing countries are often weak and can fluctuate wildly, while banking services can be hard to find.

"Bitcoin frees people from trying to operate in a modern market economy," Draper said in a statement. "With the help of Vaurum and this newly purchased bitcoin, we expect to be able to create new services that can provide liquidity and confidence to markets that have been hamstrung by weak currencies."

In a news conference, Draper said he will consider other mass purchases of bitcoins and continue to invest in other bitcoin companies.

"In five years, it'll either be worth a lot more or a lot less," he said. "I'm not a trader, I'm a long-term investor."

Vaurum, based in Palo Alto, raised $4 million earlier this year in seed funding from investors including Draper, Battery Ventures and America Online Inc. co-founder Steve Case.

Draper is regarded as a bit of a provocateur. He has made news recently as the backer of a ballot initiative to separate California into six smaller states. The venture capitalist has until July 18 to collect 807,615 signatures of registered voters for the initiative.

"California as it is, is ungovernable," Draper said in an interview with ABC News. "It is more and more difficult for Sacramento to keep up with the social issues from the various regions of California."

In 2000, Draper sponsored a failed ballot measure that would have provided government-funded vouchers to help any child attend a private school. Draper also served on the California State Board of Education in the late 1990s, and founded an entrepreneur-centered boarding school called Draper University of Heroes in San Mateo for adults.